REPAYE, A New Income Drive Repayment Program

[SigmaFS]

In response to President Obama's executive order, the Department of Education will soon introduce a new federal student loan repayment program - Revised Pay As You Earn aka REPAYE. This federal loan repayment option, REPAYE, is intended for those borrowers currently in or considering IBR, but not PAYE borrowers as PAYE is a better program.

Here are a few REPAYE details:

The good:...
1. Annual payments will be 10% of discretionary income (IBR is 15% of discretionary income).
2. No more than 50% of the actual annual negative amortization will accrue.

The bad:
1. A 25 year repayment period for graduate students/loans.
2. Spouse's income will be included regardless of tax filing status. This is mitigated if spouse has federal student loans.
3. No monthly payment cap. IBR & PAYE cap the monthly payment at no more than the 10-year standard monthly payment amount.

Again, REPAYE, is intended for those borrower's currently in or considering IBR. Below are some links for reference:

http://www.usnews.com/education/blo...ect-from-the-new-income-driven-repayment-plan
http://www.nytimes.com/2015/08/15/y...will-reduce-student-loan-repayments.html?_r=0

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[Postictal Raiden]

What happens after 25 years? Taxable forgiveness?

 

[SigmaFS]

Yes, forgiveness remains taxable.

 

[RangerBob]

I'd be interested to know if the "25-year clock" starts over with changing payments plans, or if you get credit for the payments you already made using IBR.

For PSLF, you just need to make 120 eligible payments, so that shouldn't be impacted at all (though it sounds like the PSLF amount may be limited, +/- only for new borrowers)

 

[SigmaFS]

I'd be interested to know if the "25-year clock" starts over with changing payments plans, or if you get credit for the payments you already made using IBR.

For PSLF, you just need to make 120 eligible payments, so that shouldn't be impacted at all (though it sounds like the PSLF amount may be limited, +/- only for new borrowers)

Only Direct Loans are eligible for REPAYE, excluded are FFEL, Perkins, LDS and HPSL. You could consolidate via Direct Consolidation Loan, but the language on the Direct Consolidation Loan promissory note states the clock will reset to zero for the income driven repayment programs. Now, those with Direct Loans, nothing I've read states the treatment of the time spent in IBR and it carrying forward to REPAYE. Final REPAYE language should be issued in Oct.

 

[CuriousPharmD]

This sounds like good news for those of us on IBR that will be relying on PSLF. Hopefully our payments that we have already paid under IBR will carry over for PSLF and we can just pick up on REPAYE to get lower payments from 15 to 10 percent. fingers crossed.

 

[RangerBob]

This sounds like good news for those of us on IBR that will be relying on PSLF. Hopefully our payments that we have already paid under IBR will carry over for PSLF and we can just pick up on REPAYE to get lower payments from 15 to 10 percent. fingers crossed.

You just have to make 120 eligible payments (defined as payments made on an eligible plan while working for a non-profit, with eligible plans being IBR, ICR, PAYE, and the 10-year standard repayment). They can be mixed and matched, so REPAYE shouldn't change anything other than it adds one more eligible plan. Though, we will need to make sure that PSLF isn't limited for people doing REPAYE (it seems more likely that the gov't may limit PSLF for new borrowers, but you never know).

The 25-year forgiveness is another story--as SigmaFS mentions, there's no information yet on whether previous payments made under IBR will count towards your 25-year's worth of payments for REPAYE forgiveness, or if the clock resets there. (And as he/she mentions, you would need to consolidate your loans if they are FFELP and not direct loans).

 

[CuriousPharmD]

Any updates on this new payment program?

 

[SigmaFS]

Any updates on this new payment program?

Expecting from the Dept of Education at the end of this month, October.

 

[rob554]

http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html

The new regulations were officially released today. Here's a press release from the education department.

http://www.ed.gov/news/press-releas...gulations-protect-students-and-help-borrowers

For me, I just crunched some numbers, and it's a no brainier to switch to REPAYE, even with the marriage penalty. The amount I save filing separately now at 15% isn't as much as I'll save filing jointly at 10%, and I'll finally get to take tax deductions and credits that I couldn't previously when filing separately.

My only fear is that by switching plans it will somehow later allow them to put a cap on my PSLF. I am four years down the path and I would be terrified of somehow by switching plans they would be able to throw a cap on my forgiveness, although that seems unlikely.

 

[SigmaFS]

http://www2.ed.gov/policy/highered/reg/hearulemaking/2015/index.html

The new regulations were officially released today. Here's a press release from the education department.

http://www.ed.gov/news/press-releas...gulations-protect-students-and-help-borrowers

For me, I just crunched some numbers, and it's a no brainier to switch to REPAYE, even with the marriage penalty. The amount I save filing separately now at 15% isn't as much as I'll save filing jointly at 10%, and I'll finally get to take tax deductions and credits that I couldn't previously when filing separately.

My only fear is that by switching plans it will somehow later allow them to put a cap on my PSLF. I am four years down the path and I would be terrified of somehow by switching plans they would be able to throw a cap on my forgiveness, although that seems unlikely.

During negotiated rulemaking, the Dept of Education had an opportunity to address PSLF. They chose not to. So, it's expected that current borrowers will be grandfathered under the current terms of PSLF (i.e. no cap) and new borrowers could be subject to change.

Otherwise, REPAYE is as originally described. But, I'll copy:
The good:...
1. Annual payments will be 10% of discretionary income (IBR is 15% of discretionary income).
2. No more than 50% of the actual annual negative amortization will accrue.

The bad:
1. A 25 year repayment period for graduate students/loans.
2. Spouse's income will be included regardless of tax filing status. This is mitigated if spouse has federal student loans.
3. No monthly payment cap. IBR & PAYE cap the monthly payment at no more than the 10-year standard monthly payment amount.

REPAYE should be available Dec 2015. Contact your loan servicer(s) in mid-November for application details.

 

[rob554]

Does anyone know if this requirement will still apply if switching to REPAYE?

• If you wish to change to a different repayment plan, you must first make one payment under the standard repayment plan OR make a reduced payment under a special forbearance after leaving IBR.

 

[Yellow mellow]

3. No monthly payment cap. IBR & PAYE cap the monthly payment at no more than the 10-year standard monthly payment amount.

Again, REPAYE, is intended for those borrower's currently in or considering IBR. Below are some links for reference:

http://www.usnews.com/education/blo...ect-from-the-new-income-driven-repayment-plan
http://www.nytimes.com/2015/08/15/y...will-reduce-student-loan-repayments.html?_r=0

Can you explain#3 ? Thanks

 

[Postictal Raiden]

During negotiated rulemaking, the Dept of Education had an opportunity to address PSLF. They chose not to. So, it's expected that current borrowers will be grandfathered under the current terms of PSLF (i.e. no cap) and new borrowers could be subject to change.

Otherwise, REPAYE is as originally described. But, I'll copy:
The good:...
1. Annual payments will be 10% of discretionary income (IBR is 15% of discretionary income).
2. No more than 50% of the actual annual negative amortization will accrue.

The bad:
1. A 25 year repayment period for graduate students/loans.
2. Spouse's income will be included regardless of tax filing status. This is mitigated if spouse has federal student loans.
3. No monthly payment cap. IBR & PAYE cap the monthly payment at no more than the 10-year standard monthly payment amount.

REPAYE should be available Dec 2015. Contact your loan servicer(s) in mid-November for application details.

Capping the annual amortization at 50% is huge. This will save me a lot of money. I'm projecting to graduate owing 500k. The annual interests on this amount is 35k, so if I do a 7-year postgraduate training, while making PAYE sized payments, my debt will grow by a quarter million by the time I'm done. Now with REPAYE, the debt will still grow but by half the magnitude.

 

[SigmaFS]

Can you explain#3 ? Thanks

Yes, IBR and PAYE caps your monthly payment to no more than the 10-year standard payment amount should your AGI rise to a level were the IBR or PAYE payments would exceed it. For example, if your federal student loans = $300k, @ 7%, then your 10-year standard = $3,483/month. So, if you AGI =$400K, though your calculated IBR payment = $4,785/month, the 10-year standard payment of $3,483/month would apply.

REPAYE eliminates the 10-year standard repayment cap. Your payment is always a function of your AGI.

 

[SigmaFS]

Capping the annual amortization at 50% is huge. This will save me a lot of money. I'm projecting to graduate owing 500k. The annual interests on this amount is 35k, so if I do a 7-year postgraduate training, while making PAYE sized payments, my debt will grow by a quarter million by the time I'm done. Now with REPAYE, the debt will still grow but by half the magnitude.

Just don't marry someone who has modest income or more and no federal student loan debt.